Public sector workers pensions not to be linked to final salary schemes – Hutton report

Public sector workers should not have their pensions linked to final salary schemes, recommends a report into public service pensions.

Public sector workers should not have their pensions linked to final salary schemes, recommends a report into public service pensions. The report by Lord Hutton sets out proposals for comprehensive, long-term structural reform of public service pensions schemes. The main recommendation is that existing final salary public service pension schemes should be replaced by new schemes, where a worker’s pension entitlement is linked to their salary but is related to their career average earnings. Hutton says it should be possible to introduce the new schemes before the end of this Parliament in 2015, but a longer transition for groups such as the armed forces and police should be allowed. But trades unions have warned workers are now being expected to work longer for lower pensions. Lord Hutton has also recommended that the current normal pension age for some public sector workers should be raised from 60 to 65 – this would rise in future as the state pension age eventually rises to 68. In 2020 the state pension age will rise to 66. Police, fire brigade workers and the armed forces can currently retire much earlier than 60, but they will have to retire at 60 in due course. Lord Hutton said: ”These proposals aim to strike a balanced deal between public service workers and the taxpayer. They will ensure public service workers continue to have good access to good pensions, while taxpayers benefit from greater control over their costs. ”Pensions based on career average earnings will be fairer to the majority of members that do not have the high salary growth rewarded in final salary schemes. ”The current model of public service pension provision is clearly not tenable in the long-term. There is clear need for reform. ”Getting the decisions right on the most appropriate structures and designs will be crucial to making any changes work in the future. This will only be achievable if there is effective dialogue between public service employers, employees and unions.” But union leaders have predicted the far-reaching measures from Hutton’s Independent Public Services Pension Commission will lead to strike action. TUC General Secretary Brendan Barber said: ”The recommendation comes at a time when the Government has already signalled its intention to ask public service workers to stump up an extra £2.8bn a year in pension contributions. ”Against the backdrop of increased job insecurity and a two-year pay freeze, public service workers will worry that the Government is simply going to cherry-pick elements of Lord Hutton’s report – choosing the recommendations which will result in them paying more, working longer, and receiving poorer pensions. ”The TUC and the unions are involved in negotiations with the Government about proposed contribution increases. These increases are not needed, and will be an extra tax on teachers, civil servants, local government employees, firefighters, nurses and millions of other public service workers. ”The pension schemes are already sustainable and their cost as a proportion of GDP is set to fall over time. The Government must listen to the concerns of public sector employees and avoid imposing changes that will leave workers with poorer pensions, and lead to people dropping out of schemes, leaving them with no provision in their old age.” The Commission published an interim report in October last year which found that the current public service pensions scheme had been unable to respond flexibly to rising pension costs in the past few decades. It said the current final salary scheme design feature of public service pensions was ”fundamentally unfair” to those without large salary increases during their career.